Good morning, everyone, and welcome to the Pinnacle Financial Partners First Quarter 2018 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; and Mr. Harold Carpenter, Chief Financial Officer.

Please note, Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their website at www.pnfp.com. Today's call is being recorded, and will be available for replay on Pinnacle's website for the next 90 days. [Operator Instructions].

Before we begin, Pinnacle does not provide earnings guidance or forecasts. During this presentation, we may make comments which may constitute forward-looking statements.

All forward-looking statements are subject to risks and uncertainties, and other factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements.

Many of such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's most recent annual report on Form 10-K.

Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures, as defined by SEC Regulation G.

The presentation of the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO..

Thank you, Operator. As we do these quarterly earnings call, I'll begin with this dashboard, which is intended to give the investors a quick snapshot of our performance during the quarter, highlighting not only the absolute level of performance during the quarter, but the trends which are so important to a growth company like ours.

These measures on these slides are all presented on a GAAP basis. I believe it's been demonstrated that the measures' most probably correlated with share price performance over time or revenue growth, earnings growth and asset quality. So on this slide, I think I'm going to focus on revenue growth and asset quality.

In this chart on the top left, we see total revenues continue to set a new high each quarter, up 3.5% on a linked quarter basis. Netting out securities gains and losses, total revenues were flattish compared to 4Q '17.

Unfortunately, there's a lot of noise that are not [indiscernible], things like the BNC merger, restructurings in conjunction with the tax law change and so forth.

But whenever I review the quarter in greater detail, I think you'll see that there's a lot to be excited about in terms of the revenue growth like nine basis points of expansion in the core margin and exceptional growth in volumes.

Regarding volume growth, looking out just below the revenue chart at the loan chart, organic loan growth during the quarter was nearly $700 million, which is an annualized growth rate for the quarter of 18%. And then immediately below the loan chart is a row of 3 charts, which indicate in my judgment, that asset quality remains pristine.

While these measures generally operating within or better than their historical ranges, in the case of the NPAs and classified assets, are better than the targeted operating range in the case of net charge-offs. Because all the noise managed to go in some cases, the non-GAAP measures might better illustrate the relative performance of the firm.

So on this chart, I'd like to focus on EPS, net of merger-related expenses at $1.13 in the chart on the top row in the middle. It's up roughly 36% over the same quarter last year.

Again, Harold will review this in greater detail in a few minutes, but the thing I want to highlight is that I believe the consensus estimate for our firm in 2018 is for fully diluted EPS to be up roughly 32%.

So to be on the 36% year-over-year in the quarter lends credibility to the 32% consensus estimate for EPS growth this year, and makes the PD ratio look like there are plenty of room for expansion. Immediately to the right on the first row, I want to highlight ROTCE almost reached 19% this quarter.

If you review the trend line post-recession, you can see they progressed nicely until the first and second quarter of 2017, which is when we did the large capital raise in advance of and in order to make the BNC acquisition.

As a reminder, that deal closed at the end of the second quarter, so you can see the very rapid growth in ROTCE since closing that deal. I might also say that a 19% ROTCE should provide room for our tangible book value to expand as well.

And then immediately below the ROTCE chart is the tangible book value per share chart, which obviously paints a nice picture of our ability to a great net capital and grow book value on a rapid and reliable basis. Moving on now to the ROA. We first published our targeted operating range for ROAA for the year 2012.

We've increased that targeted operating range twice before, most recently to the range of 1.3% to 1.5%, which is where we've operated over the last year or 2. We're now increasing that target to the target range of 1.5% to 1.7%. We've held the targeted ranges for the 4 component parts related to that ROA steady.

So we intend to capitalize on the bulk of the tax savings associated with the recently enacted Tax Act in order to drive shareholder returns higher. As you can see, adjusted for gains and losses on securities, merger-related charges and ORE expense, in the first quarter, we're squarely in the middle of the new target range, with an ROAA of 1.6%.

Switching gears now to the BNC integration. From my vantage point, it's been highly successful. I see that.

Now that we completed the core system conversion and finalized the cost synergies associated with integration, honestly, those first 3 bullet points were less risky initiatives, in my opinion, by comparison to a speedy achievement of cultural integration.

So for me, the bigger risk was how quickly we can inculcate our high associate engagement culture. I think the answer to that is that we have advanced further and faster even than I might have guessed. First of all, last year, Fortune Magazine's Great Place to Work Institute recognized Pinnacle as the 34th Best Workplace in America.

This quarter, they released the 2018 list, and we actually planned 12 spots, and we're right the 22nd Best Workplace in America even amid all the change and hard work required to complete the first 2 bullet points. Perhaps more telling than that is the incredible volume of new hiring we've been able to do during the -- this time of transition.

I cannot imagine any way we can drag so many great bankers in this timeframe without extraordinary excitement and endorsement by our existing associates. And then our final measure of success is that the loan growth in the Carolinas and Virginia was very strong in the first quarter.

The pre-deal annual loan growth target was roughly $500 million in loan growth. They did just north of $109 million in the first quarter. Since the deal announcement, I've repetitively tried to define the nature of success for this transaction.

Specifically, I've said BNC has a high growth CRE lending practice that we expect to continue in this previous phase, however, the key to realizing our full potential in the Carolinas and Virginia is to build out or to bolt-on a large C&I platform, which really is the thing, I think, we did best.

To that end, Rick Callicutt and his team in Carolinas and Virginia grew total CRE loans in an annualized asset growth rate of 15.7% the first quarter. They hired 5 C&I financial advisers and 2 private bankers, as well as 3 brokers and 2 mortgage originators for a total of 11 revenue producers during the first quarter.

In my judgment, there's really no better evidence of the success of our integration efforts in this hiring success. And then there at the bottom, as you can see, based on an annualized growth of the C&I loans at 26.6%, we are moving forward on all the key measures of success for the transaction at a pretty rapid pace.

I've mentioned just a minute ago the improvement in associates, excitement, engagement in this period of intense integration effort.

On this slide, you can see that not only did we advance from the 34th to the 22nd best company to work for in America, but we're moving from the seventh best workplace in financial services in the country to the third best.

Again, that's why the achievement here in the largest merger integration was undertaken today and I think it speaks to our success in cultural integration. Sometimes, I worry that people view our comments about all the workplace awards is unnecessary chest pounding.

But let me be clear, in my view, if you fail to understand the power of our brand and our culture, you'll always underestimate our ability to hire bankers, and therefore, our ability to grow our balance sheet and earnings, and ultimately, to produce shareholder returns.

To that end, I've included this slide on the research by FTSE Russel analyzing the cumulative stock market returns of publicly traded Fortune 100 Best Companies to Work For.

In the period from 1998 to 2015, the investment in these companies, the best in stock in companies that were no longer on the list and invested in the companies that were added to the list, returned to being nearly 3x that of the general market, so it's a pretty compelling case.

Similarly, 2013 studies by Luigi Guiso found that the companies we're employing has reported this, related to that was integrity. A number of competitive advantages occurred, including, number one, increased profitability; and two, greater attraction to tough job accidents.

I think in virtually every one of our investment presentations, we talked about our consistent top quartile performance on profitability measures, like ROAA and ROTCE, but also has done our ability to hire the best bankers in the market.

And so I hope that, here, you can begin to catch the linkage between our high trust culture and our out-performance, some important metrics like profitability, hiring and shareholder returns.

Speaking of the drag from the best bankers in the market, as we tried to articulate the deal rationale, we've always talked about maintaining the high-growth CRE practice that BNC developed, while bolting on the high-growth C&I business, which has the impact of turbocharging BNC's already high growth rate.

In fact, you can see that taking shape back on Slide 8. To that end, we've communicated our intent to hire roughly 65 C&I and private banking relationship managers in the Carolinas and Virginia over a 5-year period of time. Actually, we originally communicated a target of 64.

But to make matters easy going forward, I've modified the target number for C&I and private bankers of 65 to be higher over the 5-year period, beginning in July 2017, and so that makes a nice round of 13 per year. To beat on that pace, we need to hire 13 in the Carolinas and Virginia by July 2018.

So you can see we're constantly ahead of schedule in terms of hiring C&I and private bankers in the new market, having already hired 13. Now to help you think about the profit leverage in this hiring strategy, in June, the first 13 relationship managers, revenue producers and their great support associates are effectively in our current expense rate.

Let's just take the 7 relationship managers there. You all would assume that I think it's a fair assumption to assume now they'll produce at least $80 million average loan books per relationship manager over a 4-year period of time.

And so that $560 million in incremental loan growth should come in over that 4-year period with no additional compensation expense burden associated with that volume since the expense is already in our run rate. As you can see, that's a pretty powerful profit leverage.

And then we intend to ladder in the class of at least 13 relationship managers per year over the now remaining 4 years. Hopefully, they'd give you some insights on how the model works and why I'm so excited about where we are on this transaction. At this point, let me turn it over to Harold to review the quarter in greater detail..

Thanks, Terry. Revenues, excluding security gains and losses for the quarter, were essentially flat with the fourth quarter at $219 million, which was a similar occurrence for the legacy Pinnacle franchise last year, as first quarter 2017 revenues were essentially flat with the fourth quarter 2016 revenues at $119 million.

An interesting statistic here is that quarterly revenues has increased almost $100 million in the first quarter of this year over last year. Most, but not all, is attributable to the BNC acquisition.

This management team is always mindful of the trust our shareholders place in us, so we hope the shareholder base is pleased that with this meaningful growth in revenues, we also experienced a decrease in our efficiency ratio from 51% to 47.5%. We take our historical reputation of being good operators very seriously around here.

Total net interest income was flat at $174.5 million comparing the first quarter to fourth quarter. The impact of fair value accretion decreased $3.7 million during the quarter to $15.4 million, which is about where we expected to land in the first quarter.

We anticipate further decreases in discount accretion in future quarters, as the level of acquired loans and recent merger becomes less impactful and post-merger prepayment slowed. Best guess at this point is that fair value accretion is likely to be $11 million to $14 million in the second quarter.

We expect this accretion will continue to decelerate over time. At the end of March, we've got $149 million in loan discount accretion remaining on our balance sheet.

Our operating thesis is that we will continue to increase our earning asset base, as we did this quarter, such that we more than offset the ongoing reduction in quarterly discount accretion. We just have to be operating in markets where that leads us can be achieved without having to compromise on credit.

The dark green line on the chart denote revenue per share. We reported $2.83 adjusted revenue per share in the fourth quarter and are reporting $2.83 this quarter, excluding investment security losses. Again, modern unusual occurrences last year.

First quarter rev share was down meaningfully due to the stock issuances that even when you pull out the impact of the stock issuance, rev share in the first quarter of last year was flat at $2.58 per share. So we've grown revenue per share about roughly 10% year-over-year. Obviously, our goal is to continually increase this measurement.

As you all know, it's a lot easier to grow earnings per share if you grow revenue per share, which is what we expect to do as we move through 2018 with a growing balance sheet.

Concerning loans, as the chart indicates, average loans for the fourth quarter were $16 billion compared to $15.5 billion at the end of the fourth quarter, as average loans increased about $437 million, thus an annualized growth rate of better than 11%.

We believe it was a very strong first quarter for us as end of period loans increased approximately $693 million after somewhat a sluggish fourth quarter growth of $373 million.

So we're going into the second quarter with roughly $369 million more, and in the period, loan balances over the average for the first quarter, which is a great head start for 2Q. Also, there was a fed fund rate increase in late March, and from late February through quarter end, 30-day LIBOR cut by 20 basis points or so.

In the Carolinas and Virginia, their organic loan growth was approximately $195 million in the first quarter compared to $66 million in the fourth quarter compared to $61 million in the third quarter of last year. This obviously excites us as we go into 2018 as a combined firm, pressing forward to grow the franchise.

As the chart indicates and as expected, our loan yields increased to 4.91% from 4.87% last quarter, and about the same as the third quarter. Excluding the impact to purchase accounting, core loan yields were up 4 point -- up to 4.5%, up from 4.37% last quarter.

With the December rate increase, we expected core yields to increase 5 to 10 basis points, so getting 13 is outstanding. And with the March debt funds increase and the LIBOR tailwind, we are optimistic about 2Q loan yields. Here's a new slide that we've not shown before.

We felt it was important to give this on the table as we integrate assets and liabilities from of the Bank of North Carolina into the legacy Pinnacle balance sheet.

We've been discussing the composition of our loan portfolio from a pricing perspective for years, but our balance sheet changed significantly with BNC, so we thought we'd update you on our progress. With BNC, our longer-term fixed rate loan book amount to almost 43% of total loans last summer.

Since then, we've seen some dilution, as our fixed rate loan book has decreased by 2% since last summer when the merger occurred. Last week, we also execute a forward interest rate swap in order to accelerate our floating-rate component by an additional 3%.

We'd like to be at around 35% on the long-term fixed rate loan book by the middle of next -- middle of 2019, which would be near the operating position Pinnacle was at premerger. So our goal is to get the blue portion of the pie chart to approximate the red line on the chart.

Over the years, that seems to be an optimal spot for us to operate our business model from a risk return perspective. Concerning the interest rate swap, this was another step in the process to manage the interest rate risk in our balance sheet.

Last quarter, we discussed an interest rate swap in the bond book, leaving about 7% of our bond book floating since the end of September last year. This new trade involves the fixed rate loan portfolio and uses forward starts with the earliest set start in October 2018.

So we felt we're in pretty good shape, given the high probability for future rate increases. Our goal here is not to time the market on rate increases, but put our balance sheet in a position to respond well in whatever interest rate market we find ourselves. Also on the slide is additional information on our loan rates for various rate categories.

For LIBOR and prime rate, we feel like we've captured substantially all of the short-term rate increases, so our loan payer results, we feel, are consistent with much of what we hear from other mid-cap banks. One side note is that most of our LIBOR book reprices on the first day of the month.

So with the lift in rates in late March, the LIBOR book should see rate lift in April. Now about fixed rates. Fixed rate loan yields had not moved with market forces.

Some of this is due to loans recorded in prior years when rates were at various levels, but also the competitive pressures were significant as we continue to see a lot of price competition for fixed rate products, particularly newly originated owner occupied commercial real estate.

Most of our fixed rate credit is concentrated in 5-year and 7-year maturities. Even though with a 5-year tariff, we have seen a 99 basis point increase in September, we're not seeing that play through on our fixed rate portfolio with at least some increases in the fixed rate book.

Then again, the 5-year was operating in a much lower range for many years when a lot of these fixed rate loan book was created. Over time, as older loans reprice, and we'll continue to put emphasis on increasing our loan yields, we should see some escalation in the fixed rate loan book.

New fixed-rate loans have averaged about 4.65% over the last 3 months or so. As to deposits. Again, here in the first quarter, we're able to grow our funding based while maintaining low funding cost.

Our aggregate funding cost did increase 8 basis points in the first quarter from the fourth quarter, and currently stand at 81 basis points for the first quarter. As to the 8 basis point increase, wholesale funding did drop a lot of the increase, while deposit costs are up seven basis points.

[indiscernible] of 28% on deposit costs given those figures. Historically, and as the chart had indicated above, we were approximately 25 basis points in deposit cost in 3Q '15 just before Fed funds started to increase. Since then, Fed funds have increased 150 basis points, while deposit costs had increased 35 or abated 23%.

For the commercial franchise within the broad retail network, I'm personally very proud of what our relationship managers have accomplished here. As to the future, deposit costs will continue to increase in a measured pace for several factors.

The 2 most prominent are general pressure for increased deposit rates in a rising rate environment, but also we'll need to fund a significant loan pipeline. Our relationship managers are out in our markets, selling our ability to serve commercial and affluent consumer depositors with a value equating, we think, is far superior to our competitors.

More about that in a second. Concerning the small box in the middle of the slide, we talked about how we approach deposit pricing on many occasions, so this reflects some of the details. Rate sheet deposits adjust that. The rate sheet for our entire franchise and the pricing committee determines though the rates.

Some of our most valuable deposits are priced pursuant to our rate sheet. Beyond that, we've got about 29% of our deposits where rates are negotiated one-on-one with the client. This is more about our relationship banking culture. Many of these depositors will be in some way tied to a commercial relationship.

They are typically higher balance accounts, where our relationship managers are doing just that, managing perhaps numerous products for a particular client. Lastly, we've got 7% that are indexed to some source, most likely Fed funds. Lastly, we've got 16% in time deposits.

Monthly, this number gets bigger and as we're going after some of our traditional CE depositors with more push today than, say, 3 to 6 months ago.

We spent a lot of time focusing on depositors, particularly our negotiated rate class, trying to make sure we stay in constant dialogue in understanding their expectations, as they do some of our most valuable client relationships.

Additionally, many of these clients source deposits at many institution, so we have opportunities to pursue these deposits, provided we meet client expectations. I'm confident that our relationship managers know where to find the money when called on to find it. We're in markets that have ample liquidity to match our loan growth expectations.

For instance, Nashville is a $57 billion deposit market. We've got 12.5%, so there's $45 billion out there on somebody else's balance sheet. We just need our fair share. Terry, Rob and Rick are driving our sales efforts towards depositors in all of our markets. Yes, we have to aim at specific depositors. No billboards on interstates.

No $100 if you open an account with us. No $25 incentive to book into a depositor. No fine print. Yes, our private bankers are calling on affluent clients. Yes, our commercial bankers are looking for commercial operating accounts. Yes, deposit rates will increase to fund our loan growth. We will play our customary sheet lever gain.

If you believe that growing deposits is all about pricing, cleverly adding campaigns and paying your workforce a little extra to do something, then you're likely not going to get our model. Where we win is service. It's about talking to a lot of person who can fix the problem, who can make sure that late payroll gets transmitted over time.

When the wire has to go within the next 5 minutes or a child is overseas and needs a new debit card. That's what we do. That's how we do it. That's what we're good at. That said, we're not seeing deposit rates increase significantly. We still believe we've got adequate room in our plans to fund our loan growth with a fair rate paying on deposits.

Don't get me wrong, deposit bases are important. We pay attention, but right now, we're focused on gathering clients. Switching now to noninterest income fees amounting to $44 million, about the same as last quarter. Our last year first quarter was essentially flat from the fourth quarter.

Our residential mortgage had a good quarter in terms of production with approximately $238 million loan sales this quarter. Residential mortgage income was essentially flat with last quarter. Rate increases have not been helpful to this group over the last few months. Mortgage is higher, particularly in the Carolinas.

One of our objectives was for mortgage to integrate into the bank and be less of a standalone entity in Carolina. This is critical to how we run our mortgage business and optimize the penetration of our bank loans. That requires some change in personnel in the Carolinas.

It's now more integrated into the core banks, so that referrals are much more common. We are optimistic about the second quarter. I believe mortgage will see solid growth in the second quarter.

As expected, BHG's contribution was down from a big fourth quarter number, reporting in at $9.4 million, reflecting year-over-year growth of around 20% from the first quarter of this -- of last year. We continue to anticipate the net growth of BHG in 2018 should be in the 12% to 15% range. Our partnership with BHG is as strong as ever.

If we could find a few more BHGs out there, we'd do it in a heartbeat. Wealth management is off to a great start in 2018. Investment services grew income by almost $400,000 this quarter over last quarter. Keep in mind, we're in phase 1 of a build out and with investment services platform in the Carolinas.

There was a solid basis to start with over there, but one of our key goals for C&I build out is to ramp-up investment sales in that footprint immediately. We've had several significant hires in both footprints that have contributed to our renewed success in investment services.

In insurance in the first quarter, we had approximately $1 million in additional revenues from insurance companies due to claims experienced, but still insurance is doing quite well. Trust keeps growing at several key hires and trust in Tennessee and the Carolinas have pushed their revenue contribution to where it is today.

We say, well done, wealth management. We still believe that getting to our longer-term operating range of 90 to 110 basis points of average assets is achievable within the next, call it, 3 to 5 quarters. Based on current average estimates, we need about a 10% lift in current fees to get there, so we're still believers.

We need a little more push in all of our fee categories to make it happen. Now operating leverage. Our efficiency ratio on a GAAP basis was 49.7%, while our core efficiency ratio, excluding merger-related charges in ORE, was 47.6%, which was essentially flat with the fourth quarter.

We expect our noninterest expense to be a little higher this quarter, and I'll get to incentives in just a second. As I mentioned earlier, our efficiency ratio was almost 3.7% better this quarter than the second quarter last year, and there's been a whole bunch of changes between last year and this year.

We're not about to fly a mission accomplished banner, but because there's always a lot of work to do, but we think we are operating in a much, much larger franchise today more efficiently. After a lot of work, we're targeting environment in the forward BNC footprint.

This was accomplished only after 14 months after we announced the merger in 10 months since the merger date. The leadership of this firm commends our support group in operations, IT, finance, HR, Risk Management, all of the franchise for a ton of high-quality work over the last few months.

With that, I need to let you know, and our associates, know that our expenses were less than we anticipated, primarily due to incentives being less than what we planned for. We're accruing less than our targeted work for our corporate incentive plan at end of the first quarter of 2018.

A similar thing happened in the first quarter of last year, as well the first quarter the year before. This amounted to almost $2 million of expense reduction for the first quarter, had we been accruing at a targeted payout. Many of you are familiar with how we do things.

You know that our corporate incentive target offsets, such that we continue to perform in the top quartile of our peer group. It's no slouch peer group either, just check the proxy. At some banks, different groups have different incentives, and supposedly, they're all aligned, so it is good for the overall bank. As an example, executives have a plan.

Private bankers have a plan. Retail hotshots have a plan, car sales have a plan, and most likely, the other people who do the actual work don't have a plan. In reality, there's a lot of inter murals as groups compete for clients. There's cost to the reorganization of the bank personnel to call the clients to get shuffled from one group to another.

And in reality, in some year, some groups win and some groups will lose, no matter what happens to the bank. At Pinnacle, the bottom line is the bottom line. We get paid in numbers. We don't get -- we don't have our numbers, we don't get paid. Now some of you might say that it's a short-term fix, don't disagree with that.

Over the long time, you need to pay these incentives. We've had years where we pay more than the target. We maxed out at 125% of the targets. We've got years when we pay to BSA. The critical thing is the associate base understands why we do it the way we do it.

Keep in mind that Terry and myself and the entire leadership of this firm has only the same incentive plan with everyone else. Thus, if the CEO gets paid, we all get paid and vice versa.

I venture to say that there are not many conference calls where the parties are spending a lot of time talking about their incentive accrual at the end of the first quarter. Incentives are important. Well, it's one of the things that makes us unique. Our shareholders have to have the confidence in this firm to do the right thing.

Accruing at less than target kind of gets the juices going around here. Just watch and see. With that, I'll turn it back over to Terry..

All right. Thank you, Harold. Let me tell you about way of completion. We try to be as clear and explicit as we can be about our growth intentions. My belief is that this quarter's results demonstrate our ability to continue the current model for, number one, outside of organic growth; and number two, outside of profitability.

We've also outlined the high-growth markets around the Southeast and have appealed to us. And along with that, we've outlined the merger criteria, one of which is minimum earnings accretion of 3% to 5%. In answer to the question, how should we think about the timing of any future acquisitions? I'll just make these points.

First of all, I honestly don't care if we make any acquisitions at all because of outside organic growth opportunities that I feel we have. That said, I am relatively confident we'll have opportunities to do meaningfully accretive transactions in targeted desirable markets.

So thirdly, I'm not trying to make any deals right at this minute, but I believe banks are sold. They're not bought, which is just another way of saying that you have to buy them when they're for sale.

And so while I'm not necessarily trying to make a deal right at this minute, if a targeted transaction were to come up, and it could be done on a meaningfully accretive basis, I feel comfortable moving forward on that.

So I guess, finally, I think one of the objectives of these calls is for you to gain some insight in the -- my perspective of our performance during the quarter and where I think we are as a firm.

So [indiscernible] is that we have a firm that's growing, earning 36% year-over-year, having extraordinary success dragging top talent, is growing earning assets at a record level, which courses our primary method for growing future earnings. We expanded core margin 9 basis points in the quarter.

We increased our profitability target for ROAA to a new range of 1.50% to 1.70%, and we're operating squarely in the middle of that range with an ROAA of 1.60%. And we've elevated our ROTCE to nearly 19%, which just means that our current price stays of tangible value multiple has plenty of room to expand.

So operator, we'll stop there and take questions..

[Operator Instructions]. Our first question comes from Jared Shaw with Wells Fargo..

Maybe to spend a little time on the deposit discussion. I appreciated the color you gave there.

But as you're seeing the strong loan growth, as we're waiting for that to -- as we're waiting for the deposit growth to come in behind it, is how willing are you to continue to put on higher levels of borrowings? And do you have an upper limit in terms of a loan-to-deposit ratio you'll be comfortable with as we're growing out those deposits?.

Yes, sure. This is Harold. We like questions about do we have a policy around loan to deposit ratio. We don't. We've got guidelines around 100%. We're at 98%. So yes, we understand the task at hand, and we don't like operating above 100%. I don't know if we'll approach that or get over that, but we will be employing a lot of tactics to stay below it..

And then as you look at the growth opportunity on the deposit side, is it more consumer focused at this point or commercial? And is it more Tennessee versus the newer markets? Or I guess maybe a little more detail on how that works out over the next few quarters?.

Yes, I think I would say it's a pretty balanced approach, perhaps a little more commercially-oriented than consumer. In our commercial marketing themes inside the country, we always talk about we're aimed at businesses, their owners and their employees.

And so that's principally, where the consumer for us comes is in some of our offerings, like group banking to employees and our private banking efforts to business owners and so forth. So the real important for us as a company is commercial.

In terms of how we see that playing out, again, I think you know if you sort of think through the linkage here, we are bankers. As they book some business, they move their clients, which means they move their deposit books with them. And many times, a loan will come first. They'll bring that -- the entire relationship with them.

And then from that, you drive down into the rest of the business owner and the employees. I would expect that to be a balanced approach throughout the footprint, meaning not only in Tennessee, but in the Carolinas and Virginia.

I would say in the Carolinas and Virginia, you have a little more of consumer opportunity there than in the Tennessee footprint. And our folks are visibly about mobilizing those folks as well.

But I think when you get down to what you do in the short range, again, we believe, because our relationship managers know our clients so well, they know where the money is. In many cases, the money's scattered around, not just at Pinnacle, but at other banks, and so they know where the money is and how to round it up. So that's the way we work..

Okay.

And then on BHG, as we look out over the year, you said the 12% to 15% growth rate, is that full year over full year? And if so, should we expect to see the seasonality, I guess, mimic what we saw last year with maybe just the overall growth rate quarter -- or year-over-year slowdown from here?.

Yes, Jared, I think, that consistent with my expectations for share in this year. We have a lot of conversations with BHG. As a matter of fact, there's a board meeting tomorrow, so we'll get an update tomorrow with those guys. But yes, we're still expecting the seasonality in their numbers in 2018 just like 2017..

The next question comes from Stephen Scouten with Sandler O'Neill..

So wanted to get an idea on the composition at growth from North Carolina, that $195 million. I'm assuming that was still pretty heavily weighted towards CRE and then most of the strong C&I growth came from Tennessee, just as you're ramping up the hiring.

But I just want to get some conformation on that and kind of think about when you think that actual C&I growth from those new hires will begin to deliver.

Is that more of back half '18? Or flowing in the '19 more so?.

Well, yes. If you look on Slide 8 in the presentation, state that -- basically you're right, there in the $195 million, it would be a higher growth volume associated with CRE than C&I. But if you look at percentage growth rates, you can see that we grew the CRE business roughly 15%. We grew their C&I business roughly 26%.

So we think that we are turning the corner at a pretty rapid pace. But I do think if we continue to make the C&I higher, is that their growth rate will accelerate in the latter half of the year..

And what would that be like on a ballpark dollar basis just on that $195 million, is that $20 million, $30 million on the C&I? As I said, I am not sure what base we're starting off with..

Stephen, I can't tell you the number on the top of my head..

Okay, no problem..

Okay..

And then maybe thinking a little bit more about the deposit costs moving forward.

I know, I guess, first, are you guys seeing competition from the biggest banks yet? Is that still -- or do you think that could still be a driver of further increases here? And then specifically on the noninterest-bearing deposits, anything unusual that caused the end of period decline there in the quarter?.

Yes, I don't think there's anything unusual with noninterest bearing. I think we had a big year last year in noninterest-bearing, so we're still kind of trying to drive operating account growth for the franchise. I don't think we're seeing anymore enhanced competition coming out of the large regional franchises occasionally on a one-off basis.

With some of those negotiated rate class, we'll see something. But I think by and large, I think you'll see kind of a slow and steady kind of consistent increase..

Okay, great. And then maybe lastly for me, just kind of thinking about expenses as we head into 2Q '18. I appreciate the color around the incentive comp but, I guess, two things maybe. Can you tell us where you guys actually fell short of your corporate targets, because obviously had a really good quarter, so just curious that where that lag was there.

And do you think you'll -- based on what you saw in 1Q that you'd expect some sort of a catchup in the coming quarter?.

Yes, I'll be open and candidly the fee revenues numbers for the first quarter were less than we had hoped. There was probably a slight negative variance in the margin, but most of that was probably in these..

This is Terry. If I could, I might just say this. Harold jhas been pretty [indiscernible] that there on the incentive growth and all that sort of stuff. I'd just say, Harold is accruing at a rate higher this year than it was last year at the same point, we ultimately paid at greater than 100% for the year. So I'll just put that in perspective..

Yes, I know. That's really helpful, Terry..

Our next question comes from Tyler Stafford with Stephens..

I want to start on loan growth. So I think one of the big bear cases out on the stock right now is just the slowing growth from the remix of the BNC portfolio. So as -- obviously, as Stephen has said, it's nice to see that 18% loan growth this quarter.

So on the back of that strength in the hiring success you've had, can you just clear the air for us on your loan growth expectations are for this year? And what you could expect to see in the next couple of years?.

Well, let me think what we've communicated here. I guess -- Harold, I don't think we've communicated loan growth targets in any way, have we? Well, what we keep talking about is low double-digit loan growth is kind of where we think our -- we should be consistently performing.

So that will put you -- I mean, if you apply dollars to that, Tyler, you're talking about $2 billion plus kind of numbers. We still think our franchise can produce that kind of number here today..

Got it. Okay..

If I could, I might -- I think [indiscernible] what about for the remainder of this year and what about next year? I mean, we would expect that growth rate to continue next year as well..

So even with the larger balance sheet size with BNC, a double-digit growth expectations for the next foreseeable future is still pretty reasonable?.

Yes..

Great. And then just, Harold, you mentioned that the 5 to 10 basis points of core loan yield expansion that you would -- thought you would see following the December hike. So obviously, you guys came in better than that this quarter.

Is the 5 to 10 expansion in the core loan yields from the March hike, is that still the right way to think about it?.

Yes, I think so. Obviously, we're hopeful that we'll be able to replicate first quarter and the second quarter. We think we've got a couple of things going for us. One is we've got an extra day in the calendar. That's always helpful. But we'll also probably have less accretion income. So the quarter may go up.

The GAAP number is going to get hit by the fair value number. But -- so all things considered, all will cancel each other out. So then, we get to like what the rate environment is doing. I think we'll pick up a lot of that Fed funds increase in our prime book portfolio. I think we'll pick up a lot and the LIBOR increase in the LIBOR book.

I don't see any kind of indications that we're going to reduce spreads in at least 50 -- call it, 55% of the loan book..

Okay. Very good. And then I just wanted to make sure I understood one of your prior comments to Stephen's question. So you did have a slight negative variance from the incentive comp related to the margin expansion this quarter.

Is that what you said, Harold?.

Yes..

So you had previously expected maybe stronger than 9 basis points of core margin expansion in your model?.

Well, I think what we expected was a little more net interest income. I can't recall where we ended up on margin specifically, but yes..

So going back to last quarter, I believe you said in your margin outlook for the year, you're modeling in, I believe, 50% deposit rate.

Is that right?.

Yes..

Okay, so that would have been in that expectation. Got it. And then just last one for me. David Spencer, he did a nice job with the bond repositioning this quarter. Just curious if we're all done on that.

If there's left -- if there's more repositioning to come?.

No. I think we're done on all of that. We've -- he got all that basically accomplished by the end of February. So we've got some dollar pickup coming here in the second quarter from all of that..

Our next question comes from Jennifer Demba with SunTrust..

Terry, you said about 29% of your deposits are negotiated rates mostly with commercial customers.

Do you know what the beta on that has been since the Fed started raising rates?.

Jennifer, this is Harold. I really don't have that number. That's probably an interesting number to go through that, but I wish I could tell you what it is. But it was -- I would imagine, it's a higher beta, or I would know. I'd be pretty certain. It's a higher beta than what's going on, on the sheet rates..

Okay. All right..

And I think most of that is due to the size of the depositors to focus on those numbers, the interest income they get on their P&L is more meaningful. So it's all those kind of circumstances..

Okay. And you had a bit of an NPA increase this quarter.

Was there any room in that increase?.

Yes, I do know there was one, call it the $9 million credit that they put on nonaccrual towards the last half of March..

What industry would that be in?.

Oh, geez. I don't even know..

It's a [indiscernible] process..

Our next question comes from Will Curtiss of Piper Jaffray..

Maybe just quickly going back to the discussion about the securities restructurings.

How much of this quarter's, the core NIM expansion was related to the securities restructuring?.

Yes, we think probably about five basis points was that. So of the 13, we've probably got five of it out of the security book..

Okay.

And then in terms of, maybe, just as we look out over the course of the year, I mean, is the expectations for the core NIM to the whole -- to be relatively flat? Or do you think we -- this is possible we might see a little bit of modest lift as we continue through the year?.

Well, we're hopeless, we don't see a modest lift. We don't think the GAAP margin's going to decrease very much. So in order for that to happen, we've got to see a lift in the core margin. So we're hopeful that we'll be able to continue this for the rest of the year in spite of the fact the rates up..

Got it. Okay. And then you guys mentioned -- had some commentary on mortgage banking. I mean, you still feel good about year-over-year growth this year. And then also I think you guys had talked about leveraging your -- the mortgage across the rest of the franchise.

And just curious if there's any update on how that progress has been?.

Yes, I think we're still projecting growth year-over-year in mortgage. The second quarter will be a real important quarter for them because they're going into the spring buying season and all that. But mortgage -- the leadership and mortgage had been about hiring people in the Carolinas, kind of, remixing over there.

We think we've got a lot of good people in the right markets, in the right seats, so -- but that's still a work in progress..

Okay. And then last one for me. I know there's obviously a lot of attention on the newer markets but maybe, Terry, if you can talk about Nashville trends and the competitive environment.

Anything that you guys are watching closely?.

I think in the Nashville market, I wouldn't say there's any difference in this quarter than in the previous quarter.

I think, sometimes I get asked about where are you on certain commercial real estate categories like hospitality and multifamily, particularly in the core Nashville? And so we've been relatively cautious on those 2 categories and continue to be. But the growth continues to be strong in Nashville as a market.

And our position in the market seems to be extraordinary. I just make this comment from sort of anecdotal.

But the growth that we're seeing in Nashville, say in the last 2 quarters, we're moving large market accounts that had been long-term relationships to some of the large regional banks and multi duration relationships, some of these are banks that we've really been able to pick up in the last 2 quarters.

And so again, the market has momentum but our position in the market also has momentum..

Our next question comes from Michael Rose with Raymond James..

Just a question on the loan growth for low double digits this year and maybe into next year. Obviously, the first quarter was a great start but it implies, just from a straight map point of view, the growth would slow from here. But it seems like hiring is ahead of schedule. Those producers will start to ramp as the year moves on.

Can you help me reconcile why it wouldn't be closer to mid-single digits? Or just kind of what the push and the pull factors are?.

Yes, I believe you're just -- maybe a little conservatism on that part. I'm sure Terry would have a bigger number than me. That's just the way the things operate around here. But I think we can handle our numbers with low-double digit loan growth.

That's not to say that Terry is going to put the kludge here or anything, but you're right, particularly in the Carolinas, we've been really pleasantly surprised with how that hiring platform is shaping up over there..

Maybe just a follow-up, too, on the types of hires that you're making. Historically, Pinnacle in Tennessee is hired from the biggest banks. But clearly, in the Carolinas, there's been a lot of upheaval with this significant amount of mergers in the past year, 1.5 years.

Are you still hiring primarily from the larger guys? Or are you picking apart maybe some of your closer to equal-sized competitors? Or is it a blend of both? And then finally, Terry, you've talked historically about the capacity of the hires that you brought on. I wouldn't expect you to do that today.

But is that something we could expect you to again provide us some guidance on as we -- as the hiring plays out over the next couple of years?.

Let me get clear on the last question first, Michael, what you're asking about relative to the capacity of the lenders?.

Yes, I mean, a couple of years ago, you guys have brought on, I don't remember the number. It might have been 10 or 15, and you gave what you thought they could produce over a period of time. And obviously, 65 is a big number over the next couple of years from what you have hired previously.

I just want to know if we move forward, can we expect you to provide some sort of capacity on what those hires could generate in terms of loans?.

Yes, I think so. I mean, and again, I don't mind to say things that I view, a conservative estimate of the mature loan book for the hires that are being made there to be $80 million per relationship manager. So if you have 7 of those, 5 C&I and 2 private bankers, then that production over a 4-year period of time, would likely be $560 million.

And again, what's important is to understand that, that expense burden is already on our books for that group of 7 that I just mentioned there. And so that we did 5 and 2 in the second quarter, quarter before that, we did 6. So again you begin to see the pace of hiring there.

Again, if it's 13 people and $80 million above that would be a little more than $1 billion in production. So I don't know if that helps you if I'm talking about you're interested in, but that sort of how we see the numbers.

And again, you get the profit leverages pretty dramatic out of those 13 guys that have already been hired, $80 million in a loan book would be a reasonable assumption over a 4-year period of time. So $1,040,000,000 or whatever that math is.

On the other question, Michael, what were you looking for on that one?.

Just the types of lenders that you're hiring, historically prior from the bigger banks..

That's a really good question because you're right.

I think, over the years in the Tennessee footprint, I would guess, and it is a guess, but I would guess 90% of our hires that come out of the larger regional banks that have sort of traditionally dominated the markets that we were in that it might -- it could be -- even be higher than 90%, I would say.

I think when we launched in the Carolinas and Virginia, we would have a similar assumption, meaning that we would hire primarily from those large banks that we view to be vulnerable, and we have had good success hiring out of those banks that dominate the North Carolina market.

But you made a great point, we have also made a reasonable number of hires that have been dissatisfied in the transitions that are going on over there with sort of similarly sized companies also going through integration efforts and so forth. So that sort of been our ability to hire people..

That's very helpful. I'm sorry if I missed this, but maybe one more for Harold. You guys perhaps some swaps this quarter.

If rates were to move higher a couple of times, would there be more to do there? Or is this kind of it?.

Yes, I think I don't know if this is it or not. We've taken advantage of the somewhat flatter yield curve with this transaction. So I'm not going to say we won't do anymore, but we might.

We just have to see, Michael, where our model kind of, when we go through all of our interest rate sensitivity testing, where it all comes out to see where we need to be..

So is it fair to say if the curve further flatten, but you would put on some more swaps?.

We could. We could for sure..

Our next question comes from Catherine Mealor with KBW..

So most of my have been asked and answered, but I would like to circle back to the deposit growth just real quickly.

As we think about deposit growth will presumably pick up as we move through the year, can you just help us think about the composition of that deposit growth? And then Harold, you mentioned that you think CD growth is going to pick up this year probably.

And then also how should we think about the C&I ramp and the treasury management platform building in the Carolinas and Virginia? And how that should ultimately impact the composition of deposit growth as we move through the year?.

Catherine, first of all, let's talk about the CD comment. We are actively pursuing some, call it, traditional CD depositors. You've got depositors, and that's just kind of their mode. They want to get -- they want to go on CD ladder. And particularly in the Carolinas.

And I think Rick and his team are about calling those folks and making sure that if they move money away from us, what we got to do to bring it back to us because, I think we had comments, or we talked about this last quarter when the sites were being transitioned over to Carolinas, that gave everybody kind of an opportunity to revisit deposit rates and so on and so forth, but Rick has got his folks actively calling some of those traditional CD depositors to try to get that money back to the bank.

And I think you'll be really successful there. As far as growing the rest of the deposit base, I think it's going to be shoe leather. I think we've got to get our commercial lenders, our private bankers out in the market, and they are going to have to go plow that money, as Terry was talking about, and try to get it moved over to you..

And Catherine, what was the second part of your question?.

That was it.

It was just -- it was more of just the timing of as you build out the Carolinas and Virginia and overlay the treasury management platform as, I mean, because my gut would be that you -- that maybe earlier part of this year, you see maybe more in CD growth but as you continue to build out your treasury management and your C&I platform in the Carolinas and Virginia, we should see more noninterest bearing kind of core non-CD growth in the back half of the year.

Would that be an appropriate way to think about it?.

Yes, well, that's what we're thinking about. And I think as this hiring -- we bring in all these C&I lenders, that will absolutely take place..

And then what sort of on expenses, you got $2 million from the incentive comps that presumably if you kind of hit numbers better next quarter, then you maybe -- you'd get that back. It feels like we're through all of the cost savings from BNC and so maybe we're at a kind of a good run rate this quarter.

So is there a way to think about a core expense growth rate just given your hiring expectations for this year?.

Yes, sure. Let me see if I can help you out. We probably were $2 million, to call it, call it $3 million under what wouldn't be a normal kind of run rate. There were a few people that left the firm during the quarter that are part of the synergy case.

Traditionally, and you can go back and test me on this, our expense base doesn't ramp-up all that much through the year other than more hiring and increased incentives. So you can kind of project what the expense load is going to be for the rest of the year once you get the good start point in the first quarter..

Our next question comes from Andy Stapp with Hilliard Lyons..

Most of my questions, they have been answered. Just had a couple of ticky-tack like questions.

One of which would be -- just wondering how much did the prepaid penalties benefit to Q1 net interest margin versus Q4?.

Yes, Andy, I don't have that number in front of me. Call it, the scheduled fair value accretion was probably in the $12 million to $13 million range, and we ended up in $15 million. So it's probably about a $3 million number. I'd have to go dig around and find out what that number actually was..

And when talking so much of purchase accounting is loans, prepayment nowadays from loan payoffs..

I thought you're talking about prepayments on fair value. Yes, I don't have any idea on the prepayment. I'd say, it's a small number..

Okay. And wealth management revenues were up nicely despite unfavorable market conditions.

Could you talk about the drivers of the outperformance?.

Yes, sure. It's all people. We had a very nice hiring. We hired a group of people in the late, call it, third quarter last year. And they're building their book. They're moving quite a few clients from their former employer. And so we've got the benefit of that here in the first quarter..

We lifted out a team late last year that had $600 million in assets under management. So that's a big [indiscernible] and there are other hires in there, I will tell you, but that would be meaningful..

Okay.

And lastly, to what extent have loan pay downs moderated?.

I think loan pay downs have slowed. A lot of that has to do with revolving rate environment and all that stuff. But we're not seeing quite the volumes in loan pay downs here in the first quarter and are not likely to see it in the second quarter that we might have experienced, call it, second, third and fourth quarter of the last year..

Our next question comes from Brocker Vandervliet with UBS..

Just to confirm, Harold, you'd mentioned the expense growth rate was $2 million, $3 million under, would it be a normal run rate? Is it that correct?.

Yes, I think so, Brock. I think that's a fair number for the first quarter..

Okay.

On the FHLB advances, what's -- what is the base rate there that, that's linked to that we should look toward?.

Most of that is short-term kind of numbers. Probably, 90 days to 180-day kind of borrowings. Hopefully, we'll get this deposit engine cranked up here in the second quarter and we'll get some of that paid off. I know we've paid off some of it already, but we'll be focused to try to get that $1.9 billion or there's something less..

Okay. And broken record on the deposit topic.

Is deposit generation or -- and deposit retention, is that an explicit part of loan officer compensation?.

No. No, Brock. Everybody's paying off the same incentive plan. It's all based on revenue growth and earnings growth. What we do is we aim our private bankers and aim our commercial bankers at, call it, deposit rich segments and get them to go after that money. It's just how we operate around here..

Would you consider making the change? Or you're happy with your plan as it is?.

Yes, Brock, we're happy with the plan as it is. It's to say it's a -- it has served us well for 20 years. I wouldn't think we're going out of that now..

Yes. As recently, as two weeks ago, I was talking to regulators about it, not about deposit growth per se but about our incentive systems and how they work and why we like how they work.

And what we have around here are people -- the hiring model would have -- you have that 10 years' experience to come to work here are granted with mergers, you don't know where you get that but at the end of the day, that's where we're headed. And so with that comes people who know where clients are.

I think that's different than what's goes on at, call it, regional franchise or a large national franchise where they're looking for people where there's a strong, strong sales culture.

And when you get the sales culture embedded in your franchise, what you get into is, with these dynamics where it's about doing this for that, doing this for this incentive, or doing whatever for whatever incentive.

And we think that doesn't play well over the long way -- over the long term because what we're trying to do is accomplish a service culture, and we think that one of the biggest to service and the management and financial services industry is turned over.

And so what we want are people that have a lot of experience, that know where clients are, that like to serve clients and don't need a kind of a -- an incentive system that is based off of this program or that program. Does that make sense? It is [indiscernible] all the difference..

Yes, I think it's important. And lastly, going back to Jennifer's question on the NPA.

Was that a BNC credit for Pinnacle?.

That was a Pinnacle credit..

Our next question comes from Nancy Bush with NAB Research..

Couple of regulatory questions.

Can you just give us your view of the proposed changes to Dodd-Frank? And do they help, hurt, do nothing as it regards Pinnacle?.

Well, it would certainly be a help to us. I think there are several benefits. I think the one that stands out is the -- reduce in the stress testing and all those sorts of things. So it will be a help to us if that bill will ultimately pass..

Do you have a quantifiable amount that you'd get from that?.

No, I don't think so..

I'll just tag on here, I know we're running long but what really Dodd-Frank and [indiscernible], where it occupies a lot of time and attention is with people who weren't necessarily directly related to that particular task.

So call it out managers, liquidity managers and audit managers and all of those kind of folks, it's a very significant time burden on those people. And so that's where the real, I think, the real cost, the hidden cost and all that really is..

Okay. And secondly, just as you guys move into sort of a different segment of community bank, I mean, obviously, you've gone beyond the $10 billion, well beyond the $10 billion, sort of moving toward the $50 billion, and you're not the only one in the Southeast, although you have done it more quickly than some of your competitors.

Are regulators looking at you in any kind of a different way? Do you get a different regulator? A different quality of regulation? Is your -- I mean, is there a recognition that this new class of banks is being created?.

Well, I don't want to represent or speak for the regulators about their recognition, but I would say that, certainly, of course, our primary regulator is FDIC and that we've obviously regulized company by the Federal Reserve.

And I would say about the growths do use the $10 billion threshold, there is sort of a line of demarcation later on when you move into a larger regional group. And so we have passed into that growth and that when we crossed $10 billion.

And so the conversations are maybe slightly different but Harold and I wouldn't be meaningfully different than the conversations that we've had here before..

No, I don't think so. Yes..

Our next question comes from Brian Martin with FIG Partners..

I'll be short. I know it's getting long, so just a couple of last-minute things. Just going back to the deposits just for 1 minute.

It sounds like from what you said earlier, I don't know if it's Terry or Harold, but just the -- some of the lack of deposit growth this quarter was the strength last quarter but also the timing issues with -- on these new producers, the loans come may be a little bit earlier than deposits.

Does that seems fair as far as how we're thinking about things and as it plays out over the balance of the year?.

I think it is through that loans typically will [indiscernible] the deposits. I think that's accurate..

Okay. All right. And Terry, you talked about just the M&A. You kind of addressed that in your prepared remarks. But just as far as it sounds like you're at least in a position to do a deal or something came along, like you said banks are sold.

How would you characterize the opportunities today? Seems like there is been a little bit of slowdown in some bank M&A year-to-date.

But just the opportunities that you're seeing out there, how would you characterize those today?.

I would say that there are still a meaningful number of people that are at least in a mode to consider.

[Indiscernible] get out of price in multiples and all those kinds of things but just maybe to give you something to think about, Harold, I'm not sure, but I think probably from the time that we announced the BNC transaction, we've had either 3 or 4 opportunities to sign an NDA, had we wanted to pursue transaction with somebody.

So again, that's a pretty meaningful volume of opportunities and ideas, but again, it wasn't the right time for us.

But anyway, is that helpful to you?.

Yes.

And I guess, just from the multiple standpoint, there is nothing that will prevent you, I mean, I guess, from where your multiples at today to consider if you are making something work, I guess, it seems -- or I guess as you say the stock has to be meaningfully higher before you'd likely think something could work out?.

Yes. I don't put it in terms of what my stock has to be, I put in terms of what the earnings accretion has to be as those to function my stock and their stock. And so if earnings accretion is what we're looking forward, then that we'd be willing to consider a transaction..

That's helpful. And just the last 2, just Harold, just on the expenses side. I'm clear the under incentive this quarter as a lack of incentive.

I guess, the $2 million or $3 million number you're, I guess, mentioning, is that an annualized number? So it's really only $0.5 million to $750 million this quarter? So I mean, have you had the full accrual in this quarter, what the -- I guess, what I'm asking is what the expenses have been 106 or -- 106 to 107? Or would it have been closer to 104.5?.

106, 107..

Okay, 106 or 107..

The $2 million is definitely a quarterly number..

Quarterly number. Okay, fair enough. Got it. And then just the last thing was on the -- you guys talked about may be the miss or, I guess, the underperformance of the fee income.

When you look at the quarter, I guess, was it really a mortgage issue that was hurting the fee income outlook? I mean, the other component seem -- there was some seasonality with service charges but, I guess, the other -- we're also when we be looking as far as the future performance, it should kick up a little bit on the fee income side?.

Well, I think mortgage will come back to us. I think it's -- they will find their way. I think also BHG will find a way to get to 12% to 15% earnings growth for the year. So 9.5% might have been less than we anticipated in the first quarter, but I think they're well on their way..

Our next question comes from Brian Zabora with Hovde Group..

Just a question on average earning asset growth. On an average basis, it looks like security are down a little bit, cash down a little bit.

I'd like to get your thoughts about kind of growth of average earning assets, is that going to be tracked closer to loan growth maybe with some deposit increase? Or just could you use some of those other categories to fund loan growth?.

I'll answer it this way. We're at about 13% securities to total assets at the end of the first quarter. We all see that number going up very much at all. In fact, it will probably come down. So the move from, call it, short-term liquid assets to securities this quarter was fairly meaningful. It's doubtful you'll see that in the rest of the year.

We'll see some average balance increase in the second quarter because of just timing in the first quarter. But yes, we will see quite the same kind of escalation in the second quarter that we saw in the first quarter..

Understood. And then just lastly, a question on CRE concentrations. As you expected, it came up a little bit above that 300 threshold. Just wanted to get your updated thoughts.

Do you expect still to be kind of temporary above that 300 threshold? Or could you operate for a longer period above that level?.

Yes, we still believe that the 300 level, we'll stay -- we'll be above that in first half of the year and then we'll drop down. All construction, construction jobs up and the 100, we didn't breach the 100. We don't anticipate breaching the 100.

But we'll likely to see construction begin to come down here in the second quarter and go down from here as the percentage of total risk-based capital..

And there are no further questions at this time. I'd like to turn the call back over to our host..

All right. Well, we appreciate being involved with some of the call today. We look forward to next quarter. Thank you..

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day..